<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998
Commission File No. 0-29604
ENERGYSOUTH, INC.
(Successor to Mobile Gas Service Corporation)
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Alabama 58-2358943
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2828 Dauphin Street, Mobile, Alabama 36606
--------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 334-450-4774
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock ($.01 par value) outstanding at July 31, 1998 - 4,871,643 shares.
<PAGE> 2
ENERGYSOUTH, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information:
Consolidated Balance Sheets - June 30,
1998 and 1997 and September 30, 1997 3 - 4
Consolidated Statements of Income - Three, Nine and
Twelve Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Retained Earnings - Three,
Nine and Twelve Months Ended June 30, 1998
and 1997 6
Consolidated Statements of Cash Flows - Nine
Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
PART II. Other Information 13
Exhibit Index 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30, September 30,
Assets 1998 1997 1997
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 7,857 $ 8,718 $ 16,260
Receivables:
Gas 4,416 3,540 3,013
Merchandise 2,926 2,779 2,715
Other 712 677 609
Less Allowance for Doubtful Accounts (733) (727) (536)
Materials, Supplies, and Mdse (at average cost) 1,279 1,091 1,241
Gas Stored Underground for Current Use (at average cost) 1,117 1,424 2,152
Deferred Purchased Gas Adjustment 809
Deferred Gas Costs 313 399 231
Deferred Income Taxes 1,637 1,950 818
Prepayments 1,408 1,238 1,419
--------- --------- ---------
Total Current Assets 20,932 21,089 28,731
--------- --------- ---------
PROPERTY, PLANT, AND EQUIPMENT:
Property, Plant, and Equipment 168,134 160,835 165,208
Less: Accumulated Depreciation and Amortization 43,924 39,614 40,289
--------- --------- ---------
Property, Plant, and Equipment in Service - Net 124,210 121,221 124,919
Construction Work in Progress 2,086 3,050 946
--------- --------- ---------
Total Property, Plant, and Equipment - Net 126,296 124,271 125,865
--------- --------- ---------
OTHER ASSETS:
Regulatory Asset 966 1,195 1,138
Merchandise Receivables Due After One Year 5,203 4,733 4,827
Deferred Charges 1,316 1,404 1,306
--------- --------- ---------
Total Other Assets 7,485 7,332 7,271
--------- --------- ---------
Total $ 154,713 $ 152,692 $ 161,867
========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, September 30,
Liabilities and Capitalization 1998 1997 1997
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $ 2,258 $ 2,168 $ 2,930
Notes Payable 10,700
Accounts Payable 2,313 3,519 4,080
Dividends Declared 1,071 970 971
Customer Deposits 1,488 1,557 1,556
Taxes Accrued 3,251 2,656 2,827
Interest Accrued 1,446 1,491 1,897
Deferred Purchased Gas Adjustment 1,172 8
Other Liabilities 2,244 1,971 2,168
-------- -------- --------
Total Current Liabilities 15,243 14,340 27,129
-------- -------- --------
OTHER LIABILITIES:
Accrued Pension Cost 1,519 1,886 1,718
Accrued Postretirement Benefit Cost 996 1,395 1,087
Deferred Income Taxes 11,395 11,334 9,747
Deferred Investment Tax Credits 425 448 444
-------- -------- --------
Total Other 14,335 15,063 12,996
-------- -------- --------
Total Liabilities 29,578 29,403 40,125
-------- -------- --------
CAPITALIZATION:
Stockholders' Equity (Note 1)
Common Stock, $.01 Par Value
(Authorized 10,000,000 Shares;
Outstanding: June, 1998 -
4,868,000 Shares; June, 1997 -
4,849,000 Shares; September, 1997 -
4,855,000 Shares) 49 49 49
Capital in Excess of Par Value 18,035 17,635 17,746
Retained Earnings 42,298 38,222 37,382
-------- -------- --------
Total Stockholders' Equity 60,382 55,906 55,177
Minority Interest 3,274 2,895 2,985
Long-Term Debt (Less Current Maturities) 61,479 64,488 63,580
-------- -------- --------
Total Capitalization 125,135 123,289 121,742
-------- -------- --------
Total $154,713 $152,692 $161,867
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Gas Revenues $ 13,066 $ 13,166 $ 59,838 $ 58,819 $ 70,641 $ 69,360
Merchandise Sales and Jobbing 803 688 2,617 2,328 3,336 3,011
-------- -------- -------- -------- -------- --------
Total Operating Revenues 13,869 13,854 62,455 61,147 73,977 72,371
-------- -------- -------- -------- -------- --------
Operating Expenses
Cost of Gas 3,019 3,200 21,062 19,781 23,176 21,758
Cost of Merchandise and Jobbing 691 555 2,040 1,757 2,523 2,321
Operations 4,065 4,104 12,648 13,225 17,318 17,649
Maintenance 338 348 1,190 1,037 1,695 1,749
Depreciation 1,591 1,499 4,772 4,497 6,207 5,881
Taxes, Other Than Income Taxes 1,147 1,159 4,555 4,274 5,549 5,281
-------- -------- -------- -------- -------- --------
Total Operating Expenses 10,851 10,865 46,267 44,571 56,468 54,639
-------- -------- -------- -------- -------- --------
Operating Income 3,018 2,989 16,188 16,576 17,509 17,732
-------- -------- -------- -------- -------- --------
Other Income and (Expense)
Interest Expense (1,358) (1,429) (4,176) (4,238) (5,649) (5,556)
Allowance for Borrowed Funds Used
During Construction 18 69 41 156 61 174
Interest Income 339 280 967 745 1,212 999
Minority Interest (116) (104) (385) (403) (496) (511)
-------- -------- -------- -------- -------- --------
Total Other Income (Expense) (1,117) (1,184) (3,553) (3,740) (4,872) (4,894)
-------- -------- -------- -------- -------- --------
Income Before Income Taxes 1,901 1,805 12,635 12,836 12,637 12,838
-------- -------- -------- -------- -------- --------
Income Taxes 748 709 4,703 4,841 4,574 4,721
-------- -------- -------- -------- -------- --------
Net Income $ 1,153 $ 1,096 $ 7,932 $ 7,995 $ 8,063 $ 8,117
======== ======== ======== ======== ======== ========
Earnings Per Share of Common Stock (Note 4):
Basic $ 0.24 $ 0.23 $ 1.63 $ 1.65 $ 1.66 $ 1.68
======== ======== ======== ======== ======== ========
Diluted $ 0.23 $ 0.22 $ 1.61 $ 1.64 $ 1.64 $ 1.67
======== ======== ======== ======== ======== ========
Cash Dividends Declared Per Share of Common
Stock (Note 1) $ 0.22 $ 0.20 $ 0.62 $ 0.57 $ 0.82 $ 0.76
======== ======== ======== ======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period $42,216 $38,096 $37,382 $33,004 $38,222 $33,784
Net Income for Period 1,153 1,096 7,932 7,995 8,063 8,117
------- ------- ------- ------- ------- -------
Total 43,369 39,192 45,314 40,999 46,285 41,901
Less: Dividends 1,071 970 3,016 2,777 3,987 3,679
------- ------- ------- ------- ------- -------
Balance at End of Period $42,298 $38,222 $42,298 $38,222 $42,298 $38,222
======= ======= ======= ======= ======= =======
</TABLE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash Flows Provided by Operating Activities $ 13,071 $ 14,047
-------- --------
Cash Flows Used In Investing Activities -
Capital Expenditures (5,275) (9,197)
-------- --------
Cash Flows From Financing Activities:
Repayment of Long-Term Debts (2,772) (2,673)
Proceeds From Issuance of Long-Term Debt 12,000
Changes in Short-Term Borrowings (10,700) (15,000)
Payment of Dividends, Net of Dividend Reinvestment (2,727) (2,489)
-------- --------
Net Cash Used In Financing Activities (16,199) (8,162)
-------- --------
Net Decrease in Cash and Cash Equivalents (8,403) (3,312)
Cash & Cash Equivalents at Beginning of Period 16,260 12,030
-------- --------
Cash & Cash Equivalents at End of Period $ 7,857 $ 8,718
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. At the 1998 Annual Meeting of Stockholders of Mobile Gas Service
Corporation ("Mobile Gas") held on January 30, 1998, stockholders approved the
reorganization of Mobile Gas and its subsidiaries into a holding company
structure (the "Reorganization"). As part of the Reorganization, effective
February 2, 1998, Mobile Gas became a subsidiary of EnergySouth, Inc.
("EnergySouth") and shareholders of Mobile Gas automatically became shareholders
of EnergySouth, with each two shares of Mobile Gas common stock outstanding on
that date being converted into three shares of EnergySouth common stock, $.01
par value per share. All capitalization and per share data presented in this
report have been adjusted to reflect the three-for-two conversion of Mobile Gas
common stock into EnergySouth common stock. The consolidated financial
statements of EnergySouth and its subsidiaries (collectively the "Company")
include the accounts of Mobile Gas; MGS Energy Services, Inc.; MGS Storage
Services, Inc.; MGS Marketing Services, Inc.; an 87.5% owned partnership, Bay
Gas Storage Company, Ltd. ("Bay Gas"); and a 51% owned partnership, Southern Gas
Transmission Company ("SGT"). Minority interest represents the respective other
owners' proportionate shares of the income and equity of Bay Gas and SGT.
Certain amounts in the prior year period financial statements have been
reclassified to conform with the current year statement presentations. All
significant intercompany balances and transactions have been eliminated.
Note 2. The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. All adjustments, consisting of
normal and recurring accruals, which are, in the opinion of management,
necessary to present fairly the results for the interim periods have been made
and are of a recurring nature. The statements should be read in conjunction with
the summary of accounting policies and notes to financial statements included in
the Annual Report on Form 10-K of Mobile Gas for the fiscal year ended September
30, 1997.
Note 3. Due to the high percentage of customers using gas for heating, the
Company's operations are seasonal in nature. Therefore, the results of
operations for the three and nine month periods ended June 30, 1998 and 1997 are
not indicative of the results to be expected for the full year.
Note 4. Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS 128), which establishes standards for computing and presenting earnings
per share, was effective for the Company beginning October 1, 1997. SFAS 128
requires presentation of both basic and diluted earnings per share on the face
of the income statement for all periods presented. Basic earnings per common
share are computed based on the weighted average number of common shares
outstanding during each period. Diluted earnings per common share are computed
to reflect the dilutive effect of outstanding stock options. Earnings per share
for each period presented have been restated to reflect the three shares of
EnergySouth, Inc. common stock issued for each two shares of Mobile Gas common
stock, effective February 2, 1998. The restated weighted average number of
common shares outstanding used in computing basic and diluted earnings per share
for each period presented is as follows (in thousands):
7
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
1998 1997 1998 1997 1998 1997
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Weighted average shares outstanding -
Basic Earnings Per Share 4,868 4,848 4,863 4,843 4,861 4,840
Effect of dilutive outstanding stock options 57 35 65 33 61 28
----- ----- ----- ----- ----- -----
Weighted average shares outstanding -
Diluted Earnings Per Share 4,925 4,883 4,928 4,876 4,922 4,868
===== ===== ===== ===== ===== =====
</TABLE>
Note 5. Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS 131) is effective for
the Company for the fiscal year ending September 30, 1999. SFAS 131 establishes
standards for reporting operating segments by public business enterprises in
interim and annual financial statements. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Interim disclosures are not required in the year of adoption;
therefore, the Company expects to report the required financial and descriptive
information about its operating segments beginning with its annual financial
statements for the fiscal year ending September 30, 1999.
Note 6. Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132) was
issued in February 1998 and is effective for the Company for the fiscal year
beginning October 1, 1998 with earlier application encouraged. SFAS 132
standardizes the disclosure of information required about pensions and other
postretirement benefits. The Company expects to apply the disclosure
requirements of SFAS 132 in its annual financial statements for the fiscal year
ending September 30, 1998.
Note 7. Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) was issued in June
1998 and establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS 133 will be effective for the Company's
fiscal year beginning October 1, 1999. The Company does not currently have any
derivative instruments nor is it involved in hedging activities; therefore, SFAS
133 is not expected to have an effect on the Company's financial statements.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis refers to all subsidiaries of EnergySouth,
Inc., (collectively referred to as the "Company"). The Company, primarily
through its wholly-owned subsidiary Mobile Gas Service Corporation, is engaged
principally in the distribution of natural gas to residential, commercial and
industrial customers in Southwest Alabama. Other wholly-owned subsidiaries
participate and own investments in gas pipeline transportation, storage,
marketing and other energy-related services. The Alabama Public Service
Commission (APSC) regulates the Company's gas distribution and storage
operations. Interstate gas storage contracts do not require APSC approval since
the Federal Energy Regulatory Commission allows these contracts to have
market-based rates. Because of the seasonal nature of the Company's gas
distribution operations, the results for the interim periods are not necessarily
indicative of the results for an entire year.
FINANCIAL CONDITION AND LIQUIDITY
The Company generally relies on cash generated from operations and, on a
temporary basis, short-term borrowings to meet working capital requirements and
to finance normal capital expenditures. Operating activities provided cash of
$13,071,000 and $14,047,000, respectively, for the nine months ended June 30,
1998 and 1997. The decrease in cash provided by operating activities is
attributed primarily to decreased cash flow from net income and the non-cash
components of net income, primarily a reduction in deferred tax expense. The
timing of receipts and payments on operating assets and liabilities had a
minimal effect on cash provided by operations.
Cash used in capital expenditures decreased $3,922,000 for the nine months ended
June 30, 1998 primarily due to completion during the fourth quarter of fiscal
1997 of new facilities added to service a large industrial customer.
Cash used by financing activities was $16,199,000 and $8,162,000, respectively,
for the nine months ended June 30, 1998 and 1997. During the first quarter of
fiscal 1997, the Company issued $12,000,000 of 7.27% First Mortgage Bonds to
fund on-going capital projects. Payments on short-term borrowings were lower for
the fiscal 1998 nine-month period primarily due to a lower short-term debt
balance at fiscal year-end 1997 as compared to fiscal year-end 1996.
The Company's capital needs are due primarily to its on-going construction
program. Capital expenditures related to the Company's construction program for
the remainder of fiscal 1998 are estimated to be $ 1,620,000. Funds for the
Company's cash needs are expected to come from cash provided by operations,
reduction of temporary investments and, if necessary, borrowings under the
Company's revolving credit agreement. Management believes it has adequate
financial flexibility to meet its expected cash needs in the foreseeable future.
9
<PAGE> 10
RESULTS OF OPERATIONS
Net income for the three months ended June 30, 1998 and 1997 was $1,153,000 or
$.23 per share, and $1,096,000 or $.22 per share, respectively. Net income for
the nine and twelve month periods ended June 30, 1998 was $7,932,000 or $1.61
per share and $8,063,000 or $1.64 per share, respectively, compared to
$7,995,000 or $1.64 per share and $8,117,000 or $1.67 per share, respectively,
for the nine and twelve month periods of fiscal 1997. All earnings per share
amounts above are computed on a diluted basis.
The increase in earnings for the 1998 third quarter is attributed substantially
to increased gas transportation revenues. As a result of colder weather in terms
of degree days, volumes delivered by Mobile Gas to its temperature-sensitive
customers increased during the nine and twelve month periods. However, customer
consumption per degree day was less than historical usage which is believed to
be due to the consistent moderate temperatures experienced throughout the winter
season. Therefore, additional margins from increased sales were more than offset
by the operation of Mobile Gas' temperature adjustment rider which reduces
customer bills when degree days exceed historical norms. The decrease in
earnings for the nine and twelve months ended June 30, 1998 was impacted also by
a refund of a business license tax which was received in December 1996 by Bay
Gas Storage Company, Ltd. (Bay Gas), an affiliated company, resulting in a per
share impact of $.03 during the 1997 periods. Increased transportation revenues,
increased interest income, and decreased operations and maintenance expenses
offset partially the impacts previously mentioned on the nine and twelve month
period comparisons.
Gas revenues decreased 1% for the three months ended June 30, 1998 compared to
the same period in fiscal 1997. Gas sales revenues decreased $457,000 (4%) for
the 1998 third quarter due to a decrease in temperature sensitive customers' gas
consumption per degree day and lower gas sales to large commercial and
industrial customers resulting from certain customers' decreased plant
utilization and switching from sales to transportation. Customers switching from
sales to transportation results in lower recorded gas revenues since the
commodity cost of gas is no longer included in revenues from those customers.
Gas transportation revenues increased $383,000 (23%) for the 1998 third quarter.
This increase is attributed primarily to the fiscal 1998 first quarter start-up
of two large industrial users of gas, and to a lesser extent, new transportation
customers who switched from being a sales customer.
Gas revenues increased 2% for the nine and twelve months ended June 30, 1998.
Total gas sales revenues increased less than 1% for the 1998 nine and twelve
month periods compared to the same 1997 periods. Weather-normalized gas sales
revenues from temperature-sensitive customers increased 2% and 3%, respectively,
for the nine and twelve month periods due to increased sales volumes attributed
primarily to weather which was 27% colder than prior year. Large commercial and
industrial gas sales decreased 10% and 13%, respectively, and gas transport
revenues increased 16% and 14%, respectively, for the nine and twelve months
ended June 30, 1998 primarily as a result of the same factors affecting the
three month comparison.
Cost of gas decreased 6% for the fiscal 1998 third quarter and increased 6% and
7%, respectively, for the nine and twelve months ended June 30, 1998 compared to
the corresponding periods of fiscal 1997. The Company's rate schedules allow a
pass-through to customers of the cost of gas. Any over- or under-recovery of
actual gas costs incurred are
10
<PAGE> 11
charged or credited to cost of gas and included in current assets or liabilities
as deferred purchased gas adjustment. The Company recoups changes in the actual
per unit cost of gas from the amount included in the base rates through its PGA
component of customer rates. Billings under the PGA component of rates affects
revenues and cost of gas in the same amount thereby creating no net margin for
the Company. Excluding the effect of PGA billing differences between the current
and prior year periods, cost of gas decreased 7% for the 1998 three month period
compared to a 7% decrease in total gas volumes sold to customers. When excluding
PGA billing differences for the nine and twelve month periods, cost of gas
increased 5% and 1%, respectively, compared to an increase in gas volumes sold
of 5% and 1%, respectively.
Other operating revenues represent merchandise sales and jobbing revenues. The
increase in other operating revenues and the related cost of merchandise for the
three, nine and twelve month periods reflects increased sales quantities
compared to the corresponding periods of the prior year.
Operations and maintenance expense decreased 1% for the fiscal 1998 third
quarter compared to the fiscal 1997 third quarter primarily due to cost control
efforts. Operations expense decreased $577,000 (4%) and $332,000 (2%),
respectively, for the nine and twelve months ended June 30, 1998 compared to the
same periods of 1997. The primary factors causing this decrease were: lower
retirement expense resulting from a higher than expected return on plan assets,
lower payroll and other benefits, and lower expenses for outside services and
general expenses resulting from cost control efforts. An increase in sales
expenses resulting from increased advertising and promotional program expenses
partially offset the aforementioned decreases. Maintenance expenses increased
$153,000 for the nine months ended June 30, 1998 compared to the corresponding
period of 1997 due to increased maintenance on mains and services.
The Company is working to resolve the potential impact of the year 2000 on the
ability of the Company's computerized information systems to accurately process
information that may be date-sensitive. Any of the Company's programs that
recognize a date using "00" as the year 1900 rather than the year 2000 could
result in errors or system failures. The Company utilizes a number of computer
programs across its entire operation. The Company has completed its assessment
and currently is carrying out its plan of remediation. During the nine months
ended June 30, 1998, the Company has expensed costs of $85,000 relating to
modification of existing software and expects to expense additional costs of
$80,000 to complete the year 2000 remediation project by November 1998.
Depreciation expense increased approximately 6% for all three 1998 periods
presented. The increase is attributed primarily to depreciation on new
facilities which were completed during the fourth quarter of fiscal 1997 to
service a large new industrial customer.
Taxes, other than income taxes, for the three months ended June 30, 1998 have
changed primarily in relation to gas revenues upon which certain state and local
taxes are computed. The fiscal 1997 nine and twelve month periods reflect a
$246,000 refund of a business license tax which was recorded in December 1996.
Excluding the effects of this refund, the change in other taxes for the six and
twelve month periods is consistent with the change in gas revenues.
11
<PAGE> 12
Allowance for borrowed funds used during construction represents the
capitalization of interest costs to construction work-in-progress. Construction
activity has decreased for all 1998 periods compared to the same prior year
periods as a result of the aforementioned completion of new facilities during
the fourth quarter of fiscal 1997; therefore capitalized interest costs have
declined.
Interest income has increased for each fiscal 1998 period of comparison
primarily due to improved results from the financing of merchandise sales and
installations.
Income tax expense changed primarily in relation to changes in pre-tax income
for the periods ended June 30, 1998.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), was issued in February 1997 and was effective for the Company beginning
October 1, 1997. SFAS 128 establishes standards for computing and presenting
earnings per share. The Company has reported earnings per share in accordance
with SFAS 128 for all periods presented in this Form 10-Q.
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" (SFAS 131) is effective for the
Company for the fiscal year ending September 30, 1999. SFAS 131 establishes
standards for reporting operating segments by public business enterprises in
interim and annual financial statements. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Interim disclosures are not required in the year of adoption;
therefore, the Company expects to report the required financial and descriptive
information about its operating segments beginning with its annual financial
statements for the fiscal year ending September 30, 1999.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS 132) was issued in
February 1998 and is effective for the Company for the fiscal year beginning
October 1, 1998 with earlier application encouraged. SFAS 132 standardizes the
disclosure of information required about pensions and other postretirement
benefits. The Company expects to apply the disclosure requirements of SFAS 132
in its annual financial statements for the fiscal year ending September 30,
1998.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) was issued in June 1998 and
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS 133 will be effective for the Company's fiscal year
beginning October 1, 1999. The Company does not currently have any derivative
instruments nor is it involved in hedging activities; therefore, SFAS 133 is not
expected to have an effect on the Company's financial statements.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
11 Computation of Earnings Per Share
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
During the quarter for which this report is filed, there were no
reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGYSOUTH, INC.
(Successor to Mobile Gas Service Corporation)
---------------------------------------------
(Registrant)
Date: August __, 1998 /s/ John S. Davis
----------------------- ---------------------------------------------
John S. Davis
President and
Chief Executive Officer
Date: August __, 1998 /s/ Charles P. Huffman
----------------------- ---------------------------------------------
Charles P. Huffman
Vice President, Chief Financial
Officer, and Treasurer
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<C> <C> <C>
11 Computation of Earnings Per Share 15
27 Financial Data Schedule (EDGAR version only)
</TABLE>
<PAGE> 1
EXHIBIT 11
ENERGYSOUTH, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997 1998 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE: (1)
Earnings applicable to common stock $ 1,153 $ 1,096 $ 7,932 $ 7,995 $ 8,063 $ 8,117
Weighted average common shares
outstanding 4,868 4,848 4,863 4,843 4,861 4,840
Basic earnings per share $ 0.24 $ 0.23 $ 1.63 $ 1.65 $ 1.66 $ 1.68
DILUTED EARNINGS PER SHARE: (1)
Earnings applicable to common stock $ 1,153 $ 1,096 $ 7,932 $ 7,995 $ 8,063 $ 8,117
Weighted average common shares
outstanding 4,868 4,848 4,863 4,843 4,861 4,840
Incremental shares resulting from
assumed exercise of stock options 57 35 65 33 61 28
Weighted average common shares
outstanding, assuming dilution 4,925 4,883 4,928 4,876 4,922 4,868
Diluted earnings per share $ 0.23 $ 0.22 $ 1.61 $ 1.64 $ 1.64 $ 1.67
</TABLE>
(1) Restated to reflect three-for-two conversion of Mobile Gas common stock
into EnergySouth common stock effective February 2, 1998. See Note 1 of
Notes to Consolidated Financial Statements included in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR THE COMPANY FOR THE NINE MONTHS ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO THE COMPANY'S FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 124,210
<OTHER-PROPERTY-AND-INVEST> 2,086
<TOTAL-CURRENT-ASSETS> 20,932
<TOTAL-DEFERRED-CHARGES> 1,316
<OTHER-ASSETS> 6,169
<TOTAL-ASSETS> 154,713
<COMMON> 49
<CAPITAL-SURPLUS-PAID-IN> 18,035
<RETAINED-EARNINGS> 42,298
<TOTAL-COMMON-STOCKHOLDERS-EQ> 60,382
0
0
<LONG-TERM-DEBT-NET> 61,479
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,258
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 30,594
<TOT-CAPITALIZATION-AND-LIAB> 154,713
<GROSS-OPERATING-REVENUE> 62,455
<INCOME-TAX-EXPENSE> 4,703
<OTHER-OPERATING-EXPENSES> 46,267
<TOTAL-OPERATING-EXPENSES> 50,970
<OPERATING-INCOME-LOSS> 11,485
<OTHER-INCOME-NET> 582
<INCOME-BEFORE-INTEREST-EXPEN> 12,067
<TOTAL-INTEREST-EXPENSE> 4,135
<NET-INCOME> 7,932
0
<EARNINGS-AVAILABLE-FOR-COMM> 7,932
<COMMON-STOCK-DIVIDENDS> 1,071
<TOTAL-INTEREST-ON-BONDS> 4,917<F1>
<CASH-FLOW-OPERATIONS> 13,071
<EPS-PRIMARY> 1.63<F2>
<EPS-DILUTED> 1.61<F2>
<FN>
<F1>TOTAL INTEREST ON BONDS REPRESENTS INTEREST EXPENSE RELATED TO LONG-TERM DEBT
OUTSTANDING UNDER FIRST MORTGAGE BONDS AND LONG-TERM SECURED NOTES.
<F2>REPRESENTS BASIC AND DILUTED EARNINGS PER SHARE COMPUTED IN ACCORDANCE WITH
FASB 128. AMOUNTS HAVE BEEN RESTATED TO REFLECT THREE-FOR-TWO CONVERSION OF
MOBILE GAS COMMON STOCK INTO ENERGY SOUTH COMMON STOCK EFFECTIVE FEBRUARY 2,
1998. SEE NOTE 1 AND NOTE 4 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS
ENDED JUNE 30, 1998.
</FN>
</TABLE>
